Coal Company Destroys Key Argument for Coal Terminal

Industry shows that BC can't take Washington coal exports.
This post is part of the research project: Northwest Coal Exports
Copyright Paul K. Anderson, www.paulkanderson.com. Used with permission.

Copyright Paul K. Anderson, www.paulkanderson.com. Used with permission.

Cloud Peak Energy says they will ship 4 million tons of coal from British Columbia’s Westshore Terminal this year. That means Cloud Peak is almost solely responsible for current US coal exports to Asia via BC. (See here and here for US Customs figures.) Yet in a new investor report, Cloud Peak says they can’t increase coal shipments to Asia because there’s not enough room at BC export terminals.

This is precisely the opposite of what Washington coal terminal supporters claim. They say that if Washington doesn’t build coal terminals, the coal will just go out from BC instead. In an August research memo, Coal Exports From Canada, I showed there is simply not enough room at BC’s ports, not even if they undergo planned expansions. But terminal supporters just keep repeating the falsehood anyway. (See here, for example). Now, the coal industry itself is knocking down supporters’ claims.

Here’s what Cloud Peak’s latest investor report says:

…next year’s exports will again be limited by available terminal capacity. In 2012, we will aim to export similar tonnage [4 million tons] through Westshore by working to maximize shipments as opportunities arise through the year. There are currently 0.3 million tons contracted to go through the Ridley terminal in 2012. As previously disclosed, exports through the Ridley terminal incur significantly higher rail costs than through Westshore due to the longer multi railroad haul.

In other words, the coal industry is weighing in on my side: if Washington doesn’t build coal export terminals, the coal can’t go.

A glance at the numbers confirms that Cloud Peak and I are right. Even under the most generous assumptions, Westshore has at most eight million tons of spare capacity. More realistically, however, there is probably almost no additional capacity there, at least not that US steam coal shippers can take advantage of. It’s possible that there will be four or five million tons of future spare capacity at North Vancouver’s Neptune Terminal, but it’s owned by a Canadian coal company, Teck, which ships much higher-value steel-making coal mined in Canada, and so far doesn’t appear interested in replacing domestic exports with low-value US coal. The only place with any meaningful spare capacity, and only after a planned expansion, would be Ridley Terminals, which is in northern BC, almost as far away as Ketchikan, Alaska. As Cloud Peak’s report confirms, the rail costs to move low-value steam coal that distance are close to prohibitive.

So where can Peabody or Cloud Peak or Arch or Ambre move the 100 million tons of coal they want to ship to Asia annually? Nowhere. They’re stuck. Not even the volumes planned for the first phase of Cherry Point—which would export 24 million tons per year—will have a chance of moving if the Northwest doesn’t allow it.

Update 1, Nov 10: Western Washington University law professor Jean Melious has a good example of the coal-will-just-go-to-Canada zombie myth. In a late October forum, according to Melious, coal terminal spokesman Craig Cole,  “insisted that he knew for a certain fact that we’d have just as many coal trains through Bellingham even if the Cherry Point terminal were not built. Those trains absolutely definitely positively would carry the same amount of coal to Canadian ports.”

This is nuts. As Community Wise Bellingham has painstakingly demonstrated:

The only plausible way that Bellingham can experience the 20 a day increase in coal train traffic is if the proposed terminal at Cherry Point is built. If it is not built coal trains cannot just “go to Canada” because BC has no additional export capacity. On top of that the existing low-volume coal train traffic through Bellingham is likely to decline over time.

There are two incontestable facts. The first is the size of the coal terminal being proposed. You have probably already heard that it would be the largest coal terminal on the continent, but what is more important for the train discussion is how that capacity compares to the three major coal terminals in British Columbia. Simply put, the proposed terminal would be as large as the entire existing export capacity in all of BC. It is because of this ability to process essentially the same amount of coal as all three BC terminals combined that it would require the 20 trains a day.

The other fact is just as fundamental, there is simply no more coal export capacity in BC. It has been this way since 2010…

The numbers don’t lie. And you don’t have to take my word for it, you just have to believe what the Canadian ports say themselves and what the coal industry says.

Update 2, Nov 10: Now, it looks like even a planned capacity expansion at the far-northern Ridley Terminals will be absorbed by Canadian coal from Alberta. Even if it were economical to ship Powder River Basin Coal there—and Cloud Peak suggests that it’s iffy at best—the majority of the expansion will likely be dedicated to Canada’s domestic economy. This is not at all surprising given that Ridley Terminals is a government-owned facility with a mission to boost the Canadian resource economy.

Update 3, Jan 3, 2012: Post edited very slightly for accuracy.

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Comments

  1. canyonguy26 says:

    Westshore, Ridley and Neptune are adding capacity. How much will be US coal is Unknown. But more coal will likely head to Canada, regardless of what happens in the PNW US ports.

    The coal companies however are not stuck with-out a US PNW port. The Gulf States (Texas in particular) are building large new coal and bulk terminals. The new Panama Canal will allow large Bulk Ships to transverse the short-cut, allowing Gulf states a much more competitive position in Asia trade.

    The Northwest is the cheapest most efficient way to get Cleaner Western coal to Asia. Our coal will help clean the environment. Our Western coal helped clean the the air here in the United States and it will help in Asia as well.

    If the PNW doesn’t want the Jobs Canada and Texas will take them, and the Coal will still head to Asia. Much moving thru the PNW on its way to foreign ports (and foreign dock workers)………..

    • Eric de Place says:

      canyonguy26,

      The numbers prove you wrong. Even after accounting for the planned BC port expansions — and even making generous assumptions about how much of the expansions would be filled by low-value US coal — there will still be nowhere near enough room to handle even a fraction of what coal companies want to ship from Washington.

      As you point out, the cost of shipping coal via the Gulf Coast and the Panama Canal would significantly raise the price of PRB shipments to China, rendering it uneconomic.

      I would simply ask you to read Cloud Peak’s investor report. The coal companies are saying it plainly: they need Northwest ports to make it pencil.

      As for the bit about “our coal will help clean the environment” I’m not even sure where to begin…

    • Steve Erickson says:

      The fact is that the Cape size freighters that will be used for this bulk commodity can’t fit through the Panama Canal:

      Capesize
      (shipping) An ocean-going cargo vessel that is physically too large to fit through the locks of either the Panama or Suez Canals and therefore must voyage via Cape Horn at the southernmost tip of South America to get to or from the Atlantic and Pacific Oceans, or the Cape of Good Hope at the southernmost tip of South Africa to get to and from the Indian and Atlantic Oceans. Capesize vessels generally serve deepwater terminals handling raw materials, such as iron ore and coal.
      http://www.worldtraderef.com/WTR_site/vessel_classification.asp

      I’d like to see an economic analysis of shipping coal via railroad to the Gulf, then around the Cape of Good Hope at the southern tip of South America, then back north and across the Pacific.

      Or, it could be shipped in smaller vessels.

      But shipping costs would be so high that either way, there is no way that this would be competitive with Australian coal.

      So this is just a hollow threat. The Coal Fossils have to ship from the west coast.

      -Steve Erickson
      Whidbey Environmental Action Network

  2. John Fairfax says:

    Sadly, the coal will move out of other terminals if the Greenies keep it out of the PNW. Texas, for one, and Mexico for another. And Canada can take more an=d expand its terminals.

    All providing good paying, secure that the PNW could have.

    And China will get its coal from some source regardless of what the Greenies in the PNW do.

    Coal has been exported through the ports of Baltimore, Philadelphia, Norfolk and Newport News Virginia for more than a century. Those areas are hardly troubled by resultant pollution. Just ask the local fishermen.

    • Eric de Place says:

      John,

      Shipping from Texas or Mexico is not economic for the coal companies. That’s why they want NW ports.

      As I and others have pointed out numerous times, Canada’s planned port expansions wouldn’t provide anywhere near enough capacity — and it will likely be devoted to higher-value Canadian coal anyhow.

      The jobs are very far from secure. In fact, coal is among the worst job investments a port can make and the history of Western coal exports is rife with instability. You can find analysis to this effect at the following links:
      http://daily.sightline.org/2011/09/14/an-alternative-to-coal/
      http://daily.sightline.org/2011/11/02/the-instability-of-coal-exports-ii/
      http://daily.sightline.org/2011/09/12/gambling-on-coal-and-losing/

      As for China getting it from somewhere else, I’d ask you to consider resource economist Tom Power’s recent analysis, which shows that — as basic economics suggest — increasing the supply of coal to China will decrease price and therefore increase consumption. A summary is here: http://daily.sightline.org/2011/07/19/the-climate-impact-of-coal-exports/.

      Finally, coal pollution is, in fact, a meaningful problem at several of those eastern ports you mention, as it is at virtually every coal terminal.

      • canyonguy26 says:

        Sir,
        In all due respect I believe you need to do more research. Arch coal is shipping much larger volumes of coal thru Ridley than Cloud Peak. Just because it is not economical for Cloud Peak to ship coal thru Ridley does not mean mean it holds true for Arch or others.

        Certainly the US Northwest is more economical and makes the coal cheaper to get to Asia. However rail shipping to Texas is only about 200 miles further than shipping to the PNW. This makes the rail portion of the Rail Haul almost the the same. The shipping distance is further and more expensive over the water, but it will be done. Post-Panamax ships thru the canal will make it much more economic to do so. (We already ship Met coal from Baltimore all the way to China). There are large coal export projects in the works on the Gulf.

        Our coal is better and competitive with large volumes of much Dirtier coal coming out of Indonesia. Colorado and Utah coal, some of which is currently waiting for more economical docks on the west coast can compete with the best steam coal Australia has to offer. This coal would help clean-up the environment.

        It seems to me Environmentalists should be all for these projects.

        China will burn coal. China wants our cleaner coal. Since China is going to burn coal no matter what, China should burn our cleaner US Coal using good American Jobs!

  3. Eric de Place says:

    Canyonguy,

    I appreciate you weighing in here. Let’s run numbers.

    Ridley Terminals has a capacity of 12 million metric tons per year. They’re currently operating at around 9 million tons, which means they have, at most, 3 mt spare capacity. Arch Coal recently inked a deal with Ridley to move up to 2.5 mt per year in 2012 and 2013. (http://news.archcoal.com/phoenix.zhtml?c=107109&p=irol-newsArticle&ID=1517028&highlight)

    Needless to say, that’s nowhere near the 60 million tons planned for Longview, where Arch has a 38% stake in the Millenium site. What’s more, Arch’s agreement with Ridley, small as it is, sparked outrage among Canadian coal interests (for example, see here: http://www.communitywisebellingham.org/wp-content/uploads/2011/06/Ridley-Teck-PRB-Complaint.pdf, and here: http://www.theglobeandmail.com/report-on-business/coal-producers-decry-ridley-terminals-decision/article1881479/). The backlash to Arch’s deal with Ridley is not surprising given that Ridley is a government-owned operation specifically chartered to promote Canadian firms. To wit:
    “The company’s focus is to increase the value of Canada’s investment in the terminal, to support the local community of Prince Rupert, and to help canadian shippers compete more effectively in the international market by minimizing transportation costs.” (See: http://www.appointments.gc.ca/prflOrg.asp?OrgID=RID&lang=eng.)

    It’s true that Ridley is planning to expand to a 24 mt capacity, theoretically freeing up another 12 mt. But consider that Coalspur, a Canadian firm, just got an agreement for 11+ million tons per year there: http://www.canadianbusiness.com/article/56295–coalspur-signs-cn-to-carry-coal-from-vista-project-in-alberta-to-b-c-port.

    In other words, there’s no room at Ridley, even if Arch does somehow figure out how to make the economics of such a long rail move work. (Also, I’m highly skeptical that Arch is currently moving big volumes coal out of Ridley; it doesn’t show up in official Customs numbers.)

    A couple more thoughts. 200 miles is a lot given that the rail move to the NW is only around 1,200 miles to begin with. Plus, the maritime route from Texas adds another 1,600+ nautical miles (around 33% of the trip length) each way — not to mention the Panama Canal headache.

    Met coal comparisons aren’t relevant because the value of met coal is so much higher than the relatively low-energy PRB coal can command at market.

    Finally, I don’t buy that “China will burn coal no matter what.” That flies in the face of basic economics not to mention more sophisticated examinations of the issue. Please see here for a summary: http://daily.sightline.org/2011/07/27/debunking-two-bad-coal-arguments/.

  4. Steve Erickson says:

    The argument that if we don’t export “cleaner” Powder River coal than China will burn “dirtier” coal from elsewhere doesn’t stand up to logic. Leaving aside the Carbon emissions and just looking at the particulate (soot) and elemental (Mercury) pollution which blow back across the Pacific to fall here, by this rationale once the “cleaner” Powder River coal is burned or becomes uneconomic the “dirtier” coal will then be burned. After all, if altering the climate to such an extent that catastrophic climate occurs isn’t a concern, then surely neither is particulate pollution or an airborne bioaccumulative neurotoxin.

    • canyonguy26 says:

      So you say let them let them burn the dirtiest stuff on the planet? WoW! Thats logic?

      • Steve Erickson says:

        Your logic is:

        Purified Arsenic tastes better, so eat some today!

      • canyonguy26 says:

        No logic, would be if you are going to burn something for power. You would burn the best material at the best price. Powder river coal fits that description.

      • canyonguy26 says:

        I am not going to degrade you, just because I disagree with you.

  5. canyonguy26 says:

    I guess we can agree to disagree.

    Texas is building huge new coal ports. Here is an example of just one of new facilities coming online… http://www.caller.com/news/2011/jul/12/port-plans-for-surge-in-coal-business/. Much capacity is destined for valuable Met Coal, but many of the facilities have touted shipping PRB. I believe some are already shipping PRB.

    200 miles actually is not that far out the way on a railroad. Most BNSF Coal trains heading for the PNW from the PRB already transverse a longer route via the Columbia River to avoid the grades of Steven Pass. This would already push the mileage close to the same. Not to mention it takes less locomotives to pull a coal train from the PRB to Texas. No Rocky Mountains. So the rail haul is not the big difference. However water distance is quite a bit far farther, but the ports of Texas believe the new canal is going to make them competitive. Coal companies have taken notice and are taking steps. There is a lot online available about many of these Gulf Projects.

    Bad economics is building coal plants your not going to use. China is going to make coal power in these new Plants. Huge coal projects are going up around the world to fuel the machine. Many, if not most of these projects are far lower quality than coal this country is blessed with. By taking the PRB out of the equation may raise the price of coal a tiny bit, but at a cost of letting a whole lot of much dirtier product being burned instead.

    The big tonnage numbers of Powder River coal thru Cherry Point may or may not be reached via other ports. The fact is a lot of coal is going to be leaving other ports and if environmentalists have there way the jobs wont be in the PNW.

    In the here and now….

    A lot of coal is already heading to the PNW and those aren’t American Dock Workers loading our Coal!

  6. Bryan says:

    Well, I don’t get on here for a few days and I’ve got another rail on here making my arguements for me, thanks Jason… Lets be clear, once again, IF, and that is a big word at this time, if the State of Washington is going to be stupid and not build at least one of these terminals the coal will go through Canadian ports!! As I pionted out a month or so ago the BNSF, (Hathaway Industries) is looking at land off Westshore’s shore the build a terminal for storage and conveyor out to the export terminal, capacity would be around 25-30mil tons.. Also, the funny thing about the article your quoting or at least from the company, Cloud Peak, they signed a new 10 year contract to export out of Westshore, 10-12 million tons a year, that is four times what they are shipping now. So Steve I think you can do the numbers, starting in January of 2013 is when that new contract starts, so, were ever you people get the idea that if you stop exports out of Washington, (which I don’t think will happen), there will still be a very large amount of coal going right through Washington right to where it is going now.. By the way, what I can’t figure out is all these BS meetings these people been having along the CURRENT route of these trains, do any of these people know anything about the Inerstate Commerce Laws?? They can’t stop the transportation to this commodity the 9th circiut court already through the arguement out!!

    • Eric de Place says:

      Bryan,

      It’s comforting to hear that coal advocates will use case law to run roughshod over local communities. It’s no wonder you guys are so unpopular.

      Second — and I don’t really think we can stress this enough — coal companies, including Cloud Peak, say that they can’t move the volumes of coal they want without Washington ports. Sure, they may be able to move a little here and there (though I think much less than folks believe). But at the end of the day, you don’t have to take the hippies’ word for it. Just ask the coal guys.

      • Bryan says:

        I do take your roughshod commit personally. Concidering the lawsiuts come from communities and NOT the railroads. So I guess you’d be ok with 4-8000 more trucks on the freeway instead of on a train? The railroad is the most efficent mode of transportation in this country, and is damn funny to hear people talk about more diesel fumes cause of more trains. But I guess people will grasp at any straw to stop what they don’t like. Personally those people that live in those communities that a major rail corridor goes through knows that the railroad is there and has been there LONG before them, so to complain about it is pretty ignorant…

      • canyonguy26 says:

        Eric,
        By the way the oil trains are coming too……Likely even more if the pipeline gets blocked!

      • Eric de Place says:

        Canyonguy,

        Remind me again who’s paying for all the rail infrastructure to allow the region to keep moving high-value intermodal freight and passenger trains. Are the coal and oil guys paying for it or is that on the public?

  7. vj says:

    I don’t mind anyone keeping numbers honest but to argue with someone who doesn’t care about the health of anyone else or what they pollute as long as they make bank or because they don’t live there is pointless.
    The jobs mantra is nonsense. At the proposed Longview WA port the coal trains would kill far more WA jobs by blocking shoppers from the surrounding towns across the river in Oregon, me being one of MANY who would travel the extra distance to Astoria.
    Depending on the type of Railcars used, if they have Kwik Drop doors, they will also leak out coal dust in addition to that leaving the top of the railcar.
    Like most big energy projects. The promoters goal is to shove as many costs, risks, and liabilities off onto ANY and EVERYone else so they can stuff more money in their pockets.
    What would be the right thing to do? Seal the coal in containers even if the have to build them special to keep the coal out of my lungs, my water, my fish.
    Even smarter than that, if it is going to get burned in China anyway, and the blowback comes here… It is silly to be importing Crude oil from our enemies. We should burn the coal AT the mine and not transport it at all. Using the best available or developing better technology to extract mercury and whatever else is in the coal rather than leaving it to the Chinese communists to pollute more significantly with our own coal. Why are we sending our young men to fight and die overseas for crude oil when when we can produce our own energy? Quite simply we have the best congress money can buy.
    I suggest the pro exporters pseudo jobs types actually do some Real research into energy and jobs. They will find that Brazil has created many more jobs leaving the hydrocarbons where they belong, in the ground. Ethanol creates jobs and recycles those dollar many times within a community rather than sending the energy dollars overseas or into a couple deep pockets.
    Most everything you’ve been fed about Ethanol is a lie. Pull your head out of the TV and Oil industry paid for University fake studies and get some facts. Sustainable. More food since protein is a by-product. Many more jobs. Carbon neutral. Far safer and less polluting than petroleum based energy. Not crapping on anyone to make it happen. Spreads the wealth, which is why govt will never lead the way, even liberal communist govts like Obama(for confirmation read his books or Trickle Up Poverty).
    Ethanol reference: http://www.alcoholcanbeagas.com
    Wise men don’t crap where they eat. Lets have coal fed fish for dinner tonight! All for 20 jobs wahoo!

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